Consolidated Financial Results for the Fiscal Year Ended September 30, 2017

Transcription

1 Consolidated Financial Results for the Fiscal Year Ended September 30, 2017 Company name: Fuji Pharma Co., Ltd. Stock code: 4554 (URL: Representative: Eiji Takemasa, President & CEO Contact: [Japanese GAAP] November 10, 2017 Stock Exchange Listing: TSE (1st section) Toyoyuki Kamide, Executive Corporate Officer, Chief Executive, Corporate Planning Division TEL: +81-(0) Scheduled date of annual shareholders meeting: December 20, 2017 Scheduled date of payment of dividend: December 21, 2017 Scheduled submission date of annual securities report: December 20, 2017 Preparation of supplementary materials for financial results: Holding of financial results meeting: Note: The original disclosure in Japanese was released on November 10, 2017 at 16:30 (GMT +9). (All amounts are rounded down to the nearest million yen) 1. Consolidated Financial Results for the Fiscal Year Ended September 30, 2017 (October 1, 2016 to September 30, 2017) (1) Consolidated results of operations (Percentages shown for net sales and incomes represent year-on-year changes) Net sales Operating profit Ordinary profit Profit attributable to owners of parent Millions of yen % Millions of yen % Millions of yen % Millions of yen % Fiscal year ended Sep. 30, , , , , Fiscal year ended Sep. 30, , , , , Note: Comprehensive income (millions of yen) Fiscal year ended Sep. 30, 2017: 4,067 (up 171.4%) Fiscal year ended Sep. 30, 2016: 1,498 (down 24.6%) Net income Diluted net income Return on Return on per share per share equity assets Profit margin on sales Yen Yen % % % Fiscal year ended Sep. 30, Fiscal year ended Sep. 30, Reference: Equity in earnings of affiliates (millions of yen) Fiscal year ended Sep. 30, 2017: - Fiscal year ended Sep. 30, 2016: - (2) Consolidated financial position Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen As of Sep. 30, ,551 32, , As of Sep. 30, ,147 29, , Reference: Shareholders equity (millions of yen) As of Sep. 30, 2017: 32,599 As of Sep. 30, 2016: 29,224 (3) Consolidated cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of the fiscal year Millions of yen Millions of yen Millions of yen Millions of yen Fiscal year ended Sep. 30, ,238 (1,534) (3,042) 5,503 Fiscal year ended Sep. 30, ,509 (3,319) 78 6, Dividends Dividend per share Yes Yes 1Q-end 2Q-end 3Q-end Year-end Total Total cash dividends Dividend payout ratio (consolidated) Dividends on net assets (consolidated) Yen Yen Yen Yen Yen Millions of yen % % Fiscal year ended Sep. 30, Fiscal year ended Sep. 30, Fiscal year ending Sep. 30, 2018 (Estimated) Consolidated Forecast for the Fiscal Year Ending September 30, 2018 (October 1, 2017 to September 30, 2018) (Percentages represent year-on-year changes) Net sales Operating profit Ordinary profit Profit attributable to owners of parent Net income per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen First half 19, , , , Full year 38, , , ,

2 * Notes (1) Changes in significant subsidiaries during the (changes in specified subsidiaries resulting in changes in scope of consolidation): None Newly added: - Excluded: - (2) Changes in accounting policies and accounting-based estimates, and restatements 1) Changes in accounting policies due to revisions in accounting standards, others: None 2) Changes in accounting policies other than 1) above: None 3) Changes in accounting-based estimates: None 4) Restatements: None (3) Number of shares issued and outstanding (common stock) 1) Number of shares issued and outstanding as of the end of (including treasury shares) As of Sep. 30, 2017: 15,626,900 shares As of Sep. 30, 2016: 15,626,900 shares 2) Number of treasury shares as of the end of As of Sep. 30, 2017: 662,386 shares As of Sep. 30, 2016: 667,779 shares 3) Average number of shares outstanding during the Fiscal year ended Sep. 30, 2017: 14,963,582 shares Fiscal year ended Sep. 30, 2016: 14,957,897 shares (Reference) Summary of Non-consolidated Financial Results 1. Non-consolidated Financial Results for the Fiscal Year Ended September 30, 2017 (October 1, 2016 to September 30, 2017) (1) Non-consolidated results of operations (Percentages represent year-on-year changes) Net sales Operating profit Ordinary profit Profit Millions of yen % Millions of yen % Millions of yen % Millions of yen % Fiscal year ended Sep. 30, , , , , Fiscal year ended Sep. 30, , , , ,146 (5.3) Net income per share Diluted net income per share Yen Yen Fiscal year ended Sep. 30, Fiscal year ended Sep. 30, (2) Non-consolidated financial position Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen As of Sep. 30, ,155 32, , As of Sep. 30, ,557 29, , Reference: Shareholders equity (millions of yen) As of Sep. 30, 2017: 32,485 As of Sep. 30, 2016: 29, Non-consolidated Forecast for the Fiscal Year Ending September 30, 2018 (October 1, 2017 to September 30, 2018) (Percentages represent year-on-year changes) Net sales Ordinary profit Profit Net income per share Millions of yen % Millions of yen % Millions of yen % Yen First half 17, , , Full year 35, , , * The current financial report is not subject to audit procedures. * Explanation of appropriate use of earnings forecasts, and other special items Forecasts of future performance in these materials are based on assumptions judged to be valid and information available to the Company s management at the time these materials were prepared. Actual results may differ significantly from these forecasts for a number of reasons. Please refer to the section 1. Overview of Results of Operations, (1) Results of Operations on page 2 for details on the above forecasts. The Company plans to hold a financial results meeting for institutional investors and analysts on Tuesday, November 21, Materials distributed at this event will also be available on the Company s website thereafter.

3 Contents of Attachments 1. Overview of Results of Operations, etc. 2 (1) Results of Operations 2 (2) Financial Position 3 (3) Profit Allocation Policy and Dividend Payment Plan for the Current and Next Fiscal Years 4 2. Basic Approach to the Selection of Accounting Standards 4 3. Consolidated Financial Statements and Notes 5 (1) Consolidated Balance Sheet 5 (2) Consolidated Statements of Income and Comprehensive Income 7 Consolidated Statement of Income 7 Consolidated Statement of Comprehensive Income 8 (3) Consolidated Statement of Changes in Equity 9 (4) Consolidated Statement of Cash Flows 11 (5) Notes to Consolidated Financial Statements 12 Notes Regarding Assumptions for Company as Ongoing Concern 12 Significant Accounting Policies for the Preparation of Consolidated Financial Statements 12 Reclassifications 14 Additional Information 14 Segment and Other Information 14 Per-share Data 15 Material Subsequent Events Non-consolidated Financial Statements 16 (1) Non-consolidated Balance Sheet 16 (2) Non-consolidated Statement of Income 18 (3) Non-consolidated Statement of Changes in Equity Others 23 (1) Other Information 23 1

4 1. Overview of Results of Operations, etc. (1) Results of Operations 1) Summary In the current fiscal year ended on September 30, 2017, corporate earnings at companies in Japan recovered, chiefly at exporting companies, backed by the strong economy in the United States. However, the outlook is becoming increasingly uncertain due to a mixture of expectations and concerns about the new U.S. administration, Brexit, slowing economic growth in China and other emerging countries, and other events. In Japan s ethical drug industry, the Ministry of Health, Labour and Welfare announced the Comprehensive Strategy for Strengthening the Pharmaceutical Industry. The strategy has three themes to build a base for raising the share of generic drugs to 80%: a stable supply of quality drugs in Japan; more efficient use of health care expenses; and a more competitive pharmaceutical industry. To accomplish these goals, the strategy has targeted measures for making Japan s pharmaceutical industry more competitive. In addition, the December 2016 Basic Policy for Radical Reform of the Drug Pricing System includes a switch to revising National Health Insurance drug prices every year. As a result, the operating environment for the industry is becoming increasingly difficult. The Fuji Pharma Group has established the central theme of Fuji Pharma Branding. Our goal is to operate a pharmaceutical business with innovative added value from a global perspective. We want to earn the trust, understanding and support of healthcare professionals as well as people who want to lead healthy lives. By reinforcing our commitment to our management philosophy of growth and contribution, we have been building a unique business model that produces synergies in strategic fields by combining brands, generic drugs and contract manufacturing. The volume of generic drugs supplied is expected to continue to grow because these drugs are an important element of measures in Japan to hold down the cost of health care. At the same time, it is assumed that this growth will be accompanied by measures to ensure a stable supply of drugs and further cut the prices of drugs. The Fuji Pharma Group s goal is to become a specialty pharmaceutical company in its strategic market sectors. Accomplishing this goal will require becoming more cost competitive in order to compete with global pharmaceutical companies, establishing highly profitable drug brands, shifting emphasis to biosimilars and other types of drugs, and building an infrastructure for growth outside Japan. In our core field of obstetrics and gynecology, we are concentrating on sales activities for UTROGESTAN Vaginal Capsules 200mg, a natural luteinizing hormone used for corpus luteum supplements in assisted reproductive technologies. We received regulatory approval to manufacture and sell this product in In addition, the generic drug Dienogest Tablets, a treatment for endometriosis, was launched in June Activities also include sales of LUNABELL tablets ULD, a new drug for treating dysmenorrhea, increasing options for the treatment of endometriosis, and more measures for increasing market share, primarily for major products for infertility treatments and other applications. In the field of radiology, we received regulatory approval in March 2017 for the additional efficacy of the x-ray contrast agent OPTIRAY injection as a contrast agent for computerized tomography (CT) and started sales for this application. This makes it possible to use a dynamic CT for imaging the liver, pancreas and other organs in the abdomen to examine tumors and other disorders. OPTIRAY can even be used with obese individuals, thereby overcoming the problem of the inability to obtain adequate images with these patients. Consequently, there are high expectations for OPTIRAY to enable radiology procedures that will assist with the treatments of many people. We are concentrating on sales of the generic contrast agents OYPALOMIN injection and IOPAQUE injection. In addition to these products, we are focusing on sales of MAGNESCOPE intravenous injection, the most widely used MRI contrast agent in Europe. There are extensive sales activities to develop new businesses and expand transactions with the goal of establishing more relationships with hospitals throughout Japan that are subject to DPC (Diagnosis Procedure Combination). These activities involve Filgrastim BS injection Syringe and other products. 2

5 Net sales increased 3.4% year on year to 35,387 million yen. Operating profit increased 20.9% to 4,314 million yen, ordinary profit increased 42.3% to 4,628 million yen and profit attributable to owners of parent was up 55.8% to 3,301 million yen. The Group does not provide segment information because it has only a single business segment, which is the pharmaceutical business. 2) Outlook for the next fiscal year In the fiscal year ending on September 30, 2018, the Fuji Pharma Group will continue to concentrate on sales activities of products in core business domains. However, performance will be affected by National Health Insurance drug price revisions in April 2018 as well as by an increase in R&D expenses for new drugs. In addition, although there was a foreign exchange gain in the past fiscal year, no such gain is anticipated in the fiscal year ending in September As a result, Fuji Pharma expects net sales of 38,139 million yen (a 7.8% increase), operating profit of 4,850 million yen (a 12.4% increase), ordinary profit of 4,710 million yen (a 1.8% increase) and profit attributable to owners of parent of 3,345 million yen (a 1.3% increase) for the fiscal year ending September 30, (2) Financial Position 1) Assets, liabilities and net Assets Total assets increased 1,403 million yen from the end of the previous fiscal year to 49,551 million yen, net assets were 32,601 million yen, and the equity ratio was 65.8% as of the end of the fiscal year under review. Current assets increased 899 million yen to 33,208 million yen mainly because of an increase in notes and accounts receivable-trade. Non-current assets increased 504 million yen to 16,342 million yen mainly due to an increase in buildings and structures. Current liabilities decreased 1,226 million yen to 11,513 million yen mainly due to decreases in the repayment of current portion of long-term loans payable and notes and accounts payable-trade. Non-current liabilities decreased 745 million yen to 5,436 million yen. Net assets increased 3,375 million yen to 32,601 million yen mainly because of increases in retained earnings and foreign currency translation adjustment. 2) Cash flows Cash and cash equivalents (hereinafter, net cash ) as of the end of the fiscal year under review totaled 5,503 million yen, a decrease of 1,311 million yen over the end of the previous fiscal year. The cash flow components during the fiscal year and the main reasons for changes are as described below. Cash Flows from Operating Activities Net cash provided by operating activities was 3,238 million yen (a year-on-year decrease in inflow of 1,271 million yen). This was the net result of adding depreciation of 1,769 million yen and a 185 million yen decrease in inventories to profit before income taxes of 4,530 million yen, while there were a 1,982 million yen increase in notes and accounts receivable-trade, income taxes paid of 1,094 million yen, a 642 million yen decrease in notes and accounts payable-trade and other factors. Cash Flows from Investing Activities Net cash used in investing activities was 1,534 million yen (a year-on-year decrease in outlays of 1,784 million yen). This was mainly due to the purchase of property, plant and equipment of 1,477 million yen, while there were the proceeds from sales of property, plant and equipment of 130 million yen resulting from 3

6 sale-and-leaseback transactions of machinery equipment at the Toyama plant. Cash Flows from Financing Activities Net cash used in financing activities was 3,042 million yen (net cash provided of 78 million yen in the previous fiscal year). This was due to the repayment of long-term loans payable of 1,921 million yen and cash dividends paid of 704 million yen. Reference: Cash flow indicators FY9/15 Equity ratio (%) Market value-based equity ratio (%) Interest-bearing debt to cash flow ratio (%) 1, Interest coverage ratio (Times) Equity ratio: Shareholders equity / Total assets - Market value-based equity ratio: Market capitalization / Total assets - Interest-bearing debt to cash flow ratio: Interest-bearing debt / Operating cash flows - Interest coverage ratio: Operating cash flows / Interest expenses Notes: 1. All indicators are calculated based on consolidated figures. 2. Market capitalization is calculated by multiplying the closing share price at the end of the by the number of shares outstanding (net of treasury shares) at the end of the. 3. Interest-bearing debt includes all debt on the consolidated balance sheet that incur interest. 4. Net cash provided by (used in) operating activities in the consolidated statement of cash flows and interest expenses in the consolidated statement of income are used as operating cash flows and interest expenses, respectively. (3) Profit Allocation Policy and Dividend Payment Plan for the Current and Next Fiscal Years One of our highest priorities is to pay a consistent dividend to shareholders and increase the dividend. Our policy concerning the allocation of earnings is to increase retained earnings to fund future business operations while paying a stable and consistent dividend that reflects our performance, the dividend payout ratio and all other applicable items in each fiscal year. We plan to reinvest retained earnings to strengthen research and development, make capital expenditure for production capacity and efficiency improvements, and increase our sales force in order to strengthen our base of operations and increase corporate value. There are no plans to change the frequency of dividend payments. In accordance with our initial plan, we plan to pay a year-end dividend of 25 yen per share (annual dividend of 48 yen per share inclusive of a 23 yen interim dividend, dividend payout ratio of 21.8%) for the fiscal year ended on September 30, For the fiscal year ending on September 30, 2018, based on the forecast for this fiscal year, plans for business operations and other applicable items, we plan to pay an annual dividend of 56 yen per share, the sum of a 28 yen interim dividend and 28 yen year-end dividend. 2. Basic Approach to the Selection of Accounting Standards The Fuji Pharma Group uses Japanese accounting standards. Decisions about the use of IFRS will be made by taking into consideration the use of accounting standards in Japan and other countries. 4

7 3. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheet Assets Current assets (As of Sep. 30, 2016) (As of Sep. 30, 2017) Cash and deposits 6,815 5,503 Notes and accounts receivable-trade 13,072 15,142 Merchandise and finished goods 4,641 3,667 Work in process 2,268 2,130 Raw materials and supplies 4,659 5,688 Accounts receivable-other Deferred tax assets Other Allowance for doubtful accounts (5) (6) Total current assets 32,309 33,208 Non-current assets Property, plant and equipment Buildings and structures 8,574 10,643 Accumulated depreciation (4,440) (4,975) Buildings and structures, net 4,134 5,667 Machinery, equipment and vehicles 7,663 9,687 Accumulated depreciation (6,234) (6,939) Machinery, equipment and vehicles, net 1,428 2,747 Land Leased assets 2,701 3,096 Accumulated depreciation (655) (1,053) Leased assets, net 2,046 2,043 Construction in progress 2, Other 1,068 1,142 Accumulated depreciation (952) (981) Other, net Total property, plant and equipment 11,016 11,703 Intangible assets Goodwill 1,936 1,976 Other 1, Total intangible assets 3,060 2,709 Investments and other assets Investment securities Long-term advance payments-trade 1,152 1,285 Deferred tax assets Other Total investments and other assets 1,762 1,930 Total non-current assets 15,838 16,342 Total assets 48,147 49,551 5

8 Liabilities Current liabilities (As of Sep. 30, 2016) (As of Sep. 30, 2017) Notes and accounts payable-trade 6,291 5,721 Current portion of long-term loans payable 1, Lease obligations Income taxes payable 599 1,064 Provision for bonuses Provision for directors bonuses 8 9 Provision for sales returns Other 2,760 2,746 Total current liabilities 12,739 11,513 Non-current liabilities Long-term loans payable 2,653 2,000 Lease obligations 1,943 1,780 Net defined benefit liability 1,052 1,108 Other Total non-current liabilities 6,181 5,436 Total liabilities 18,921 16,949 Net assets Shareholders equity Capital stock 3,799 3,799 Capital surplus 5,023 5,023 Retained earnings 21,944 24,541 Treasury shares (1,488) (1,476) Total shareholders equity 29,278 31,887 Accumulated other comprehensive income Valuation difference on available-for-sale securities 2 8 Deferred gains or losses on hedges (92) 8 Foreign currency translation adjustment Remeasurements of defined benefit plans 5 16 Total accumulated other comprehensive income (53) 711 Non-controlling interests 1 2 Total net assets 29,226 32,601 Total liabilities and net assets 48,147 49,551 6

9 (2) Consolidated Statements of Income and Comprehensive Income (Consolidated Statement of Income) (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Net sales 34,229 35,387 Cost of sales 20,691 20,671 Gross profit 13,537 14,715 Selling, general and administrative expenses Sales commission 1,257 1,537 Salaries and bonuses 2,343 2,313 Provision for bonuses Provision for directors' bonuses 8 9 Retirement benefit expenses Research and development expenses 1,840 1,825 Depreciation Amortization of goodwill Other 3,242 3,349 Total selling, general and administrative expenses 9,969 10,401 Operating profit 3,568 4,314 Non-operating income Foreign exchange gains Dividend income of life insurance 1 5 Fiduciary obligation fee 1 0 Compensation income 5 6 Other Total non-operating income Non-operating expenses Interest expenses Sales discounts 8 7 Foreign exchange losses Other 2 3 Total non-operating expenses Ordinary profit 3,251 4,628 Extraordinary income Gain on sales of non-current assets 1 0 Gain on sales of investment securities 36 - Subsidy income 46 - Total extraordinary income 83 0 Extraordinary losses Loss on sales of non-current assets 19 - Loss on retirement of non-current assets Loss on reduction of non-current assets 31 - Loss on valuation of investment securities - 77 Total extraordinary losses Profit before income taxes 3,148 4,530 Income taxes-current 1,026 1,425 Income taxes-deferred 2 (196) Total income taxes 1,029 1,228 Profit 2,118 3,301 Profit attributable to non-controlling interests 0 0 Profit attributable to owners of parent 2,118 3,301 7

10 (Consolidated Statement of Comprehensive Income) (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Profit 2,118 3,301 Other comprehensive income Valuation difference on available-for-sale securities (17) 5 Deferred gains or losses on hedges (92) 100 Foreign currency translation adjustment (525) 647 Remeasurements of defined benefit plans, net of tax Total other comprehensive income (619) 765 Comprehensive income 1,498 4,067 Comprehensive income attributable to Comprehensive income attributable to owners of parent 1,498 4,066 Comprehensive income attributable to non-controlling interests (0) 0 8

11 (3) Consolidated Statement of Changes in Equity (Oct. 1, Sep. 30, 2016) Balance at beginning of current Cumulative effects of changes in accounting policies Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares Total shareholders equity 3,799 5,023 20,669 (1,504) 27,988 (169) (169) Restated balance 3,799 5,023 20,499 (1,504) 27,818 Changes of items during Dividends of surplus (674) (674) Profit attributable to owners of parent 2,118 2,118 Purchase of treasury shares (0) (0) Disposal of treasury shares Net changes of items other than shareholders equity Total changes of items during Balance at end of current Balance at beginning of current Cumulative effects of changes in accounting policies Valuation difference on available-forsale securities - - 1, ,460 3,799 5,023 21,944 (1,488) 29,278 Accumulated other comprehensive income Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Noncontrolling interests Total net assets (10) ,593 (38) (38) (207) Restated balance (10) ,385 Changes of items during Dividends of surplus (674) Profit attributable to owners of parent Purchase of treasury shares (0) Disposal of treasury shares 15 Net changes of items other than shareholders equity Total changes of items during Balance at end of current 2,118 (17) (92) (525) 15 (619) (0) (619) (17) (92) (525) 15 (619) (0) (92) 31 5 (53) 1 29,226 9

12 (Oct. 1, Sep. 30, 2017) Balance at beginning of current Changes of items during Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares Total shareholders equity 3,799 5,023 21,944 (1,488) 29,278 Dividends of surplus (704) (704) Profit attributable to owners of parent 3,301 3,301 Purchase of treasury shares (0) (0) Disposal of treasury shares Net changes of items other than shareholders equity Total changes of items during Balance at end of current - - 2, ,609 3,799 5,023 24,541 (1,476) 31,887 Balance at beginning of current Changes of items during Valuation difference on available-forsale securities Accumulated other comprehensive income Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Noncontrolling interests Total net assets 2 (92) 31 5 (53) 1 29,226 Dividends of surplus (704) Profit attributable to owners of parent Purchase of treasury shares (0) Disposal of treasury shares 12 Net changes of items other than shareholders equity Total changes of items during Balance at end of current 3, , ,601 10

13 (4) Consolidated Statement of Cash Flows Cash flows from operating activities (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Profit before income taxes 3,148 4,530 Depreciation 1,667 1,769 Amortization of goodwill Increase (decrease) in allowance for doubtful accounts 0 0 Increase (decrease) in provision for bonuses Increase (decrease) in provision for directors bonuses (4) 0 Increase (decrease) in net defined benefit liability Interest and dividend income (1) (1) Interest expenses Foreign exchange losses (gains) 243 (280) Loss on retirement of non-current assets Decrease (increase) in notes and accounts receivable-trade (796) (1,982) Decrease (increase) in inventories (240) 185 Increase (decrease) in notes and accounts payable-trade 240 (642) Other, net Subtotal 5,441 4,375 Interest and dividend income received 2 2 Interest expenses paid (58) (45) Income taxes paid (874) (1,094) Net cash provided by (used in) operating activities 4,509 3,238 Cash flows from investing activities Purchase of investment securities (100) - Proceeds from sales of investment securities 90 - Purchase of property, plant and equipment (2,308) (1,477) Proceeds from sales of property, plant and equipment Purchase of intangible assets (346) (65) Decrease (increase) in long-term advance payments (1,152) (119) Subsidy income 46 - Other, net (1) (1) Net cash provided by (used in) investing activities (3,319) (1,534) Cash flows from financing activities Purchase of treasury shares (0) (0) Proceeds from long-term loans payable 2,000 - Repayments of long-term loans payable (921) (1,921) Cash dividends paid (674) (704) Repayments of lease obligations (326) (416) Net cash provided by (used in) financing activities 78 (3,042) Effect of exchange rate change on cash and cash equivalents (118) 27 Net increase (decrease) in cash and cash equivalents 1,150 (1,311) Cash and cash equivalents at beginning of 5,664 6,815 Cash and cash equivalents at end of 6,815 5,503 11

14 (5) Notes to Consolidated Financial Statements Notes Regarding Assumptions for Company as Ongoing Concern Not applicable. Significant Accounting Policies for the Preparation of Consolidated Financial Statements 1. Scope of consolidation Number of consolidated subsidiary: 1 Name of consolidated subsidiary: OLIC (Thailand) Limited 2. Application of equity method Not applicable. 3. Period end of consolidated subsidiary The fiscal year of the consolidated subsidiary ends on the closing date of consolidated financial statements. 4. Significant accounting standards (1) Valuation criteria and methods for significant assets 1) Securities Available-for-sale securities Securities with market quotations Valued at the market price, using a market value at the end of the fiscal year, differences in valuation to be included in net assets, and cost of securities sold being determined by the moving average method. Securities without market quotations Moving average cost method. 2) Derivatives Stated at fair value. 3) Inventories The Company applies the gross-average method for merchandise and finished goods (the carrying value on the balance sheet is written down to reflect declines in profitability), and primarily the first -in, first-out cost method for other items (the carrying value on the balance sheet is written down to reflect declines in profitability). The overseas consolidated subsidiary applies primarily the cost method based on the moving average method. (2) Depreciation and amortization method for principal depreciable assets 1) Property, plant and equipment (excluding lease assets) The Company applies the declining-balance method. The overseas consolidated subsidiary applies the straight-line method. However, the Company applies the straight-line method for depreciation of buildings which were acquired on or after April 1, 1998 (excluding the facilities attached to the buildings) and the facilities attached to the buildings and structures which were acquired on or after April 1, The useful lives of property, plant and equipment are summarized as follows: Buildings and structures 7 to 50 years Machinery, equipment and vehicles 3 to 8 years 2) Intangible assets (excluding lease assets) Software used within the Company Amortization of software used within the Company is calculated by the straight-line method over a of three to five years. Other intangible assets Straight-line method. 3) Lease assets Lease assets associated with finance lease transactions where there is no transfer of ownership The straight-line method with no residual value is applied over the lease used as the useful life of the assets. 12

15 (3) Accounting for significant allowance 1) Allowance for doubtful accounts To prepare for credit losses on receivables, an allowance equal to the estimated amount of uncollectible receivables is provided for general receivables based on the historical write-off ratio, and bad receivables based on a case-by-case determination of collectibility. 2) Provision for bonuses To provide for accrued bonuses for employees, an allowance is provided at the amount based on the estimated bonus obligations in the current fiscal year. 3) Provision for directors bonuses To provide for directors bonus obligation, an allowance is provided at the amount based on the estimated bonus obligations at the end of the current fiscal year. 4) Provision for sales returns To prepare for losses on returned products, an allowance is provided at the amount equal to the estimated profit on the approximate amount of returned products that is calculated based on past rejection rates. (4) Accounting method for retirement benefit obligations 1) Method of attributing estimated retirement benefit obligations to s In calculation of retirement benefit obligations, the Company uses the straight -line method for attributing estimated retirement benefit obligations to ended on September 30, ) Amortization of actuarial differences Actuarial gain or loss is amortized and charged to expense in the year following the fiscal year in which such gain or loss is recognized by the straight-line method over a certain (five years) which is within the estimated average remaining years of service of the eligible employees of the Company. Regarding the overseas consolidated subsidiary, actuarial gain or loss is charged to expense as incurred. (5) Translation of significant foreign currency-denominated assets and liabilities The balance sheet accounts of the overseas subsidiary, etc. are translated into Japanese yen at the spot exchange rate as of the consolidated closing date, with the income statement accounts at an average foreign exchange rate for the fiscal year under review. Translation adjustments are included in the foreign currency translation adjustment and non -controlling interests under net assets. (6) Accounting for hedges 1) Hedging method The Company primarily applies the deferred hedge accounting method. With respect to foreign currency risk, a hedge is accounted by the short-cut method if the hedging relationship meets certain criteria. 2) Hedging instruments and risks hedged Hedging instruments: Forward exchange contracts Risk hedged: Accounts payable and forecasted transactions denominated in foreign currencies on imports of raw materials 3) Hedging policy Forward exchange contracts are used primarily for imports of raw materials and only to the point of cove ring purchases of these materials. The purpose is to reduce exposure to foreign exchange volatility risks associated with accounts payable and forecasted transactions denominated in foreign currencies. 4) Evaluation method for the effectiveness of hedges Evaluations of the effectiveness of hedges using forward exchange contracts use comparisons of changes in cumulative changes in cash flows of the hedged item and market movements with cumulative changes in cash flows of the hedging method and market movements. However, no evaluations of effectiveness are performed for forward exchange transactions that use the short-cut method. (7) Amortization method and amortization of goodwill Goodwill is amortized using the straight-line method over a of 12 years. 13

16 (8) Definition of cash and cash equivalents in the consolidated statement of cash flows Cash and cash equivalents consists of vault cash, deposits that can be withdrawn on demand, and short -term investments, with maturities of three months or less, that are highly liquid and readily convertible to known amounts of cash and present insignificant risk of change in value. (9) Other significant matters for preparation of the consolidated financial statements Accounting for consumption taxes Consumption taxes are accounted by the tax-exclusion method. Reclassifications Consolidated Statement of Income Sales discounts, included in Other under Non-operating expenses in the previous fiscal year, is reclassified and presented as a separate line item in the current fiscal year since the amount exceeded 10% of non-operating expenses. The consolidated financial statements for the previous fiscal year are restated to conform to the current - presentation. Accordingly, the 11 million yen of Other line items included in Non-operating expenses in the previous fiscal year s consolidated statement of income have been reclassified as 8 million yen of Sales discounts and 2 million yen of Other line items. Additional Information Application of Implementation Guidance on Recoverability of Deferred Tax Assets Effective from the current fiscal year, the Company has applied the Implementation Guidance on Recoverability of Deferred Tax Assets (Accounting Standards Board of Japan (ASBJ) Guidance No. 26, March 28, 2016). Executive Compensation Stock Trust Plan The Company has adopted an Executive Compensation Stock Trust Plan, a system of job performance linked stock compensation for its directors (excluding outside directors) and corporate officers who meet the beneficiary requirements prescribed by stock compensation distribution regulations. The purpose of this plan is to increase the motivation of these directors and corporate officers to improve the Group s medium to long-term performance and achieve growth in corporate value. For the accounting treatment of this trust contract, the Company uses the gross method in accordance with Practical Solution on Transactions of Delivering the Company s Own Stock to Employees etc. through Trusts (ASBJ Practical Issues Task Force (PITF) No. 30, March 26, 2015). (1) Structure of the trust The Executive Compensation Stock Trust Plan uses a trust funded by monetary contribution from the Company to purchase the Company s stock (common stock) for use as a stock compensation program. Every year, through the trust, directors and others receive the Company s stock or cash based on points granted in accordance with executive positions and performance as stipulated in stock compensation distribution regulations established by the Company s Board of Directors. The Board of Directors, based on these rules, will determine in November 2015, 2016 and 2017 the amount of compensation used for calculating points. Stock will then be distributed in the following December accordingly. (2) The Company s stock held by the trust The Company s stock held by the trust is included in net assets as treasury shares at book value (excluding associated expenses). There were 24,015 shares with a book value of 53 million yen at the end of September 2016 and 18,579 shares with a book value of 41 million yen at the end of September Segment and Other Information Omitted since the Group has only a single business segment, which is the pharmaceutical business. 14

17 Per-share Data (Yen) (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Net assets per share 1, , Net income per share Notes: 1. Diluted net income per share is not presented because there are no latent shares. 2. Company stock held by Sumitomo Mitsui Trust Bank, Limited (Trust account) was included in treasury shares, which is deducted from the number of shares used to calculate the average number of shares outstanding during and the total number of issued shares at the end of, as trust assets of the Executive Compensation Stock Trust Plan. The average number of shares of the Company stock held by the trust during was 19,535 shares and the number of shares of the Company stock held by the trust at the end of was 18,579 shares. 3. The basis of calculating the net income per share is as follows: (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Net income per share Profit attributable to owners of parent 2,118 3,301 Amount not attributable to ordinary shareholders Profit attributable to owners of parent applicable to common stock - - 2,118 3,301 Average number of shares outstanding (Shares) 14,957,897 14,963, The basis of calculating the net assets per share is as follows: (As of Sep. 30, 2016) (As of Sep. 30, 2017) Total net assets 29,226 32,601 Deduction on total net assets 1 2 [of which non-controlling interests ] [1] [2] Net assets applicable to common shares 29,224 32,599 Number of common stock shares used in calculation of net assets per share (Shares) 14,959,121 14,964,514 Material Subsequent Events Not applicable. 15

18 4. Non-consolidated Financial Statements (1) Non-consolidated Balance Sheet (As of Sep. 30, 2016) (As of Sep. 30, 2017) Assets Current assets Cash and deposits 6,309 5,307 Notes receivable-trade Accounts receivable-trade 12,231 14,158 Merchandise and finished goods 4,502 3,367 Work in process 2,211 2,034 Raw materials and supplies 4,318 5,109 Advance payments-trade 1 70 Prepaid expenses Forward exchange contracts - 11 Deferred tax assets Accounts receivable-other Short-term loans receivable from subsidiaries and associates 1,891 2,366 Other Allowance for doubtful accounts (0) (0) Total current assets 32,474 33,380 Non-current assets Property, plant and equipment Buildings 7,270 7,558 Accumulated depreciation (3,478) (3,770) Buildings, net 3,792 3,788 Structures Accumulated depreciation (151) (160) Structures, net Machinery and equipment 5,198 5,447 Accumulated depreciation (4,182) (4,402) Machinery and equipment, net 1,015 1,045 Vehicles Accumulated depreciation (43) (44) Vehicles, net 1 0 Tools, furniture and fixtures Accumulated depreciation (813) (821) Tools, furniture and fixtures, net Land Leased assets 2,701 2,955 Accumulated depreciation (655) (1,019) Leased assets, net 2,046 1,936 Construction in progress Total property, plant and equipment 7,586 7,495 Intangible assets Distributorship Software Telephone subscription right 7 7 Total intangible assets 1, Investments and other assets Investment securities Shares of subsidiaries and associates 4,615 4,615 Investments in capital 0 0 Claims provable in bankruptcy, claims provable in rehabilitation and other 1 1 Long-term advance payments-trade 1,152 1,285 Long-term prepaid expenses 1 1 Deferred tax assets

19 (As of Sep. 30, 2016) (As of Sep. 30, 2017) Guarantee deposits Insurance funds Total investments and other assets 6,378 6,551 Total non-current assets 15,083 14,775 Total assets 47,557 48,155 Liabilities Current liabilities Notes payable-trade Accounts payable-trade 5,705 5,068 Current portion of long-term loans payable 1, Lease obligations Accounts payable-other 1,433 1,766 Accrued expenses Income taxes payable Accrued consumption taxes Deposits received Forward exchange contracts Provision for bonuses Provision for directors' bonuses 8 9 Provision for sales returns Other 1 - Total current liabilities 11,829 10,491 Non-current liabilities Long-term loans payable 2,653 2,000 Lease obligations 1,870 1,719 Guarantee deposits received Provision for retirement benefits 1,001 1,064 Long-term accounts payable-other Total non-current liabilities 5,892 5,178 Total liabilities 17,721 15,670 Net assets Shareholders' equity Capital stock 3,799 3,799 Capital surplus Legal capital surplus 4,408 4,408 Other capital surplus Total capital surpluses 5,023 5,023 Retained earnings Legal retained earnings Other retained earnings General reserve 5,000 5,000 Retained earnings brought forward 17,427 19,958 Total retained earnings 22,591 25,122 Treasury shares (1,488) (1,476) Total shareholders' equity 29,926 32,468 Valuation and translation adjustments Valuation difference on available-for-sale securities 2 8 Deferred gains or losses on hedges (92) 8 Total valuation and translation adjustments (89) 16 Total net assets 29,836 32,485 Total liabilities and net assets 47,557 48,155 17

20 (2) Non-consolidated Statement of Income Net sales (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Net sales of finished goods 25,703 26,895 Net sales of goods 6,289 6,091 Total net sales 31,993 32,986 Cost of sales Beginning merchandise and finished goods 4,537 4,502 Cost of purchased goods 4,069 2,746 Transfer from other account (29) 69 Cost of products manufactured 15,167 15,020 Royalty fee Total 23,767 22,390 Ending merchandise and finished goods 4,502 3,367 Transfer to other account 2 0 Total cost of sales 19,262 19,021 Gross profit 12,731 13,965 Reversal of provision for sales returns 14 1 Gross profit-net 12,745 13,966 Selling, general and administrative expenses Promotion expenses Sales commission 1,257 1,537 Packing and transportation expenses Entertainment expenses Directors' compensations Salaries and bonuses 2,127 2,163 Provision for bonuses Provision for directors' bonuses 8 9 Provision of allowance for doubtful accounts 0 0 Retirement benefit expenses Welfare expenses Traveling and transportation expenses Rent expenses Depreciation Research and development expenses 1,840 1,825 Other 1,185 1,295 Total selling, general and administrative expenses 9,212 9,828 Operating profit 3,533 4,138 18

21 Non-operating income (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Interest income Interest on securities 0 - Dividend income 0 0 Foreign exchange gains Dividend income of life insurance 1 5 Commission fee 1 0 Subsidy income 2 - Compensation income 5 6 Fiduciary obligation fee 1 0 Miscellaneous income 8 8 Total non-operating income Non-operating expenses Interest expenses Foreign exchange losses Sales discounts 8 7 Miscellaneous loss 2 3 Total non-operating expenses Ordinary profit 3,215 4,478 Extraordinary income Gain on sales of investment securities 36 - Subsidy income 46 - Total extraordinary income 82 - Extraordinary losses Loss on sales of non-current assets 19 - Loss on retirement of non-current assets Loss on reduction of non-current assets 31 - Loss on valuation of investment securities - 77 Total extraordinary losses Profit before income taxes 3,111 4,379 Income taxes-current 969 1,344 Income taxes-deferred (4) (199) Total income taxes 965 1,144 Profit 2,146 3,235 19

22 Manufacturing Statement (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Item Note Amount % Amount % I Cost of materials 11, , II Labor cost *1 1, , III Overheads *2 2, , Cost accounting Total manufacturing costs 15, , Beginning work in process 2,176 2,211 Total 17,349 17,124 Ending work in process 2,211 2,034 Transfer to other account *3 (29) 69 Cost of products manufactured 15,167 15,020 The Company applies the simple process costing method on the basis of actual cost accounting. (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) *1. The amount of provisions for allowances included in the labor cost is as follows: *1. The amount of provisions for allowances included in the labor cost is as follows: Provision for bonuses 308 Provision for bonuses 347 Retirement benefit expenses 52 Retirement benefit expenses 53 *2. Major breakdown is as follows: Depreciation 901 Repair expenses 338 Utilities expenses 293 Rent expenses 277 Supplies expenses 260 *3. Breakdown of transfer to other account is as follows: Cost of sales (29) Selling, general and administrative expenses 0 Total (29) *2. Major breakdown is as follows: Depreciation 913 Repair expenses 382 Utilities expenses 308 Supplies expenses 274 Rent expenses 102 *3. Breakdown of transfer to other account is as follows: Cost of sales 69 Selling, general and administrative expenses 0 Total 69 20

23 (3) Non-consolidated Statement of Changes in Equity (Oct. 1, Sep. 30, 2016) Balance at beginning of current Changes of items during Dividends of surplus Capital stock Legal capital surplus Capital surplus Other capital surplus Shareholders equity Total capital surplus Legal retained earnings Retained earnings Other retained earnings General reserve Retained earnings brought forward Total retained earnings 3,799 4, , ,000 15,955 21,119 (674) (674) Profit 2,146 2,146 Purchase of treasury shares Disposal of treasury shares Net changes of items other than shareholders equity Total changes of items during Balance at end of current Balance at beginning of current Changes of items during ,472 1,472 3,799 4, , ,000 17,427 22,591 Shareholders equity Treasury shares Total shareholders equity Valuation and translation adjustments Valuation difference on available-for-sale securities Deferred gains or losses on hedges Total valuation and translation adjustments Total net assets (1,504) 28, ,458 Dividends of surplus (674) (674) Profit 2,146 2,146 Purchase of treasury shares Disposal of treasury shares Net changes of items other than shareholders equity Total changes of items during Balance at end of current (0) (0) (0) (17) (92) (110) (110) 15 1,488 (17) (92) (110) 1,377 (1,488) 29,926 2 (92) (89) 29,836 21

24 (Oct. 1, Sep. 30, 2017) Balance at beginning of current Changes of items during Dividends of surplus Capital stock Legal capital surplus Capital surplus Other capital surplus Shareholders equity Total capital surplus Legal retained earnings Retained earnings Other retained earnings General reserve Retained earnings brought forward Total retained earnings 3,799 4, , ,000 17,427 22,591 (704) (704) Profit 3,235 3,235 Purchase of treasury shares Disposal of treasury shares Net changes of items other than shareholders equity Total changes of items during Balance at end of current Balance at beginning of current Changes of items during ,530 2,530 3,799 4, , ,000 19,958 25,122 Shareholders equity Treasury shares Total shareholders equity Valuation and translation adjustments Valuation difference on available-for-sale securities Deferred gains or losses on hedges Total valuation and translation adjustments Total net assets (1,488) 29,926 2 (92) (89) 29,836 Dividends of surplus (704) (704) Profit 3,235 3,235 Purchase of treasury shares Disposal of treasury shares Net changes of items other than shareholders equity Total changes of items during Balance at end of current (0) (0) (0) , ,649 (1,476) 32, ,485 22

25 5. Others (1) Other Information 1. Breakdown of Sales (Finished goods) Efficacy (Oct. 1, 2015 Sep. 30, 2016) (Oct. 1, 2016 Sep. 30, 2017) Amount % Amount % YoY change (%) Diagnostic drugs 11, , (2.3) Hormone drugs 6, , Metabolic drugs 1, , Circulatory drugs 1, (6.3) Antibiotics and chemotherapeutics (1.0) Urogenital and genital organ drugs Dermatological preparations Others 5, , (Merchandise) Subtotal 27, , Hormone drugs 3, , (7.3) Diagnostic drugs 2, , (3.1) In vitro diagnostics Others (4.6) Subtotal 6, , (3.1) Total 34, , Notes: 1. Sales are categorized by the efficacy of drugs rather than business segments because the Group has only a single business segment, which is the pharmaceutical business. 2. The above amounts are based on selling prices and do not include consumption taxes. 3. Fractions less than one million yen are omitted. This financial report is solely a translation of Kessan Tanshin (in Japanese, including attachments), which has been prepared in accordance with accounting principles and practices generally accepted in Japan, for the convenience of readers who prefer an English translation. 23